Investment is essential for future financial security, and it’s never too early or too late to start. With market volatility and inflation, investing regularly helps individuals grow money over time and create a significant corpus. But, simply investing money in any asset class without diversification is risky and can result in severe losses. That’s why making proper investments at the right time and in the right asset classes is crucial to bring financial stability and fulfil long-term goals. Here, balanced advantage funds (BAF) can help.
Balanced advantage funds are open ended mutual funds that invest in debt, equity, and arbitrage instruments. This hybrid approach gives investors the best of both worlds, wealth creation opportunities and protection against market volatility.
The benefits don’t end here. Discussed below are more advantages of balanced advantage funds, highlighting how they provide the right balance to a portfolio.
- Dynamic asset allocation
Through a dynamic asset allocation strategy, the fund manager constantly keeps a check on the market valuations and modifies the asset allocation accordingly.
In case the equity markets are overvalued, the fund manager reduces the equity allocation and increases debt allocation to provide stability to the portfolio. Similarly, if the equity markets are undervalued, the fund manager may increase the equity allocation to benefit from lower valuations.
This strategy helps these funds provide stability to the portfolio and mitigate risks, which is useful for many investors who prefer growth with less risks.
- Perfect balance of stability and growth
BAFs are less risky as compared to pure equity funds. By investing in a mix of equity, debt, and arbitrage and diversifying within those asset classes, these funds offer stability and spread the risk that comes with investing in one asset class alone.
For example, if the equity markets do not perform well, the debt investments can provide stability and vice versa. This makes BAFs investments a good option for investors who are looking for better risk-adjusted returns.
Moreover, the diversification offered by a single balanced advantage fund saves on transactional costs associated with buying and selling different individual securities. This reduces the expenses, making these funds cost-effective.
- Leverage opportunities through market timing
With the ability to shift between equity and debt on time, balanced advantage funds can capitalise on market opportunities and optimise returns. This way, these funds help investors create a balanced portfolio that adapts to the market changes automatically, helping them avoid making market timing mistakes.
Experienced fund managers monitor market conditions closely and strategically switch the fund’s investments, which may bring more returns and lower volatility than other funds that only focus on either equity or debt investments.
- Risk mitigation through active management
These mutual fund schemes are actively managed by the fund managers who use various parameters such as price-to-book (P/B), price-to-earning (P/E), etc., for stock valuation. They also conduct thorough research and analysis to mitigate the risks and make timely adjustments to the portfolio as per market trends, to maximise returns.
As a result, these funds provide investors with a dual benefit of market-linked returns and capital preservation, all while maintaining a balanced portfolio.
Ending notes
Features like dynamic asset allocation, ability to leverage market volatility, and elimination of market timing help balanced advantage funds provide the right balance to a portfolio.
One can easily invest in these funds online through a systematic investment plan (SIP) or lump sum. Whatever method one prefers, it is important to study all scheme related documents carefully to understand the fund and then compare it with other similar funds. Consult a financial advisor to get a personal approach to investing that prioritises an investor’s goals and requirements.
